One of the ways to you can improve your life in general is to learn better money management. Think this means reusing plastic bags and driving a 15-year old car? Not at all. There are some very simple things you can do in everyday life which can add up to huge savings over the course of a month or year.
The “B” word - budget
Are you one of those people who needs to learn how to manage your money better? Here are some questions you can ask yourself:
> Do you feel really strapped all of the time for money, just barely covering your living expenses?
> Do you see your credit cards as the only means to go on vacation, buy Christmas presents, or clothes for you or your family
Track your expenses
You don’t have to go crazy here, but you would be amazed how many people are unaware of home much money goes in and out of their bank accounts on a regular basis. You don’t need to know your cash flow to the penny, but it helps.
Tools you can use to track your expenses:
> Microsoft Money or Quicken.
> You could use a spreadsheet program like Excel.
> You can even track you spending on some notebook paper.
Whatever you choose, write down everything. If you buy a can of soda at the gas station when you pay for gasoline, write down how much you spent for “gas” and how much you spent on “meals eaten out”. I know, a can of soda doesn’t sound like a meal; if you don’t like it, then make up your own categories.
You’ll want to do this for three months, then average the amount spent for each category. Hopefully, your average monthly expenses will be less than your monthly income.
Prioritize
Once you have established your list of categories (and you can’t really be done until you’ve tracked yourself for the three months) is to put them in some kind of priority.
Put the most important on top, but don’t number them yet. For example: your mortgage, groceries, utilities, health insurance, etc. Now above, whatever you have put at the top of your list, put savings and investments. Already there? GOOD! You’re learning. Hopefully, the things you have listed at the bottom of your list will be things like movie rentals, dining out, etc.
Examine what you’ve spent each month on each category
You may be surprised at how much you’ve spent on items you believe are very frivolous. When I did this, my Starbucks expenditures were startling. For help with this, Appendix C has a budget sheet.
Write down what you would like to spend next to what you are actually spending. Remember, the total of what you’d like to spend can’t exceed your monthly take-home pay.
Figure out what you’d like to spend next month on each category
Most people can’t stick to a budget because the one they make for themselves is too complicated, is not fully supported by a spouse, does not plan for the unexpected, or is unrealistic, so they stop doing it. Here are some tips to help you come up with a winning formula:
> GOALS - Don’t make your budget goals something that you’ve got nothing to strive for. If you are spending $150/month dining out and you budget $125, you’ll likely just become a poor tipper.
> REALITY - If you’re spending $80/month on gas, don’t think you’ll be able to drop that amount in half. Unless you are changing jobs so you’re closer to home or thinking about biking to work, gasoline is a pretty static cost. The same goes with groceries and utility bills. These are fairly fixed costs. Don’t short yourself here or you will find yourself scrambling to find enough each month to pay basic living expenses.
> UNITY - Is there a particular goal you are working toward? Maybe the goal is for Mom to be able to stay home with the kids or the family paying off all credit cards and getting out of debt. Budgets work best when everyone in the family understands and agrees on the end goal.
> CONSISTENCY - An exercise program won’t work if you don’t stick with it. Neither will a budget. You have to be consistent, not on-again-off-again. If you spend more than you should one month, it’s not the end of the world. Just buckle down and commit to doing better next month.
> FLEXIBILITY - It takes time and experimentation to find a system that works for you. Also, things happen all the time that are unplanned. Do you have a little rubber in your budget? Be flexible.
